Fourth Quarter 2014: A Year of Opportunities and Challenges


Federal Reserve Bank of San Francisco

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February 24, 2015

The First Glance 12L provides a first look at economic performance and the financial condition of banks headquartered within the 12th Federal Reserve District. The 4Q14 report, subtitled “2014: A Year of Opportunities and Challenges,” highlights several 12th District economic measures that outpaced the nation and discusses continued incremental improvement in bank asset quality and loan growth. While economic conditions brightened and loan demand re-surged, low and declining interest rates limited increases in profitability. On-balance sheet liquidity and capital measures, although moderating, remained well-above pre-crisis troughs. Rising interest rates remain a forward risk relative to depositor behavior, and securities market values. Also, a continued shift towards longer-term assets may mute the lift in asset yields that rising interest rates might otherwise bring. The credit effects of the Crisis are substantially in the rear view mirror. Still, lenders will need to exercise caution as the recovery unfolds; looser underwriting may be boosting loan growth at some institutions. Further, institutions face myriad operational and compliance challenges as summarized under the “Hot Topics” section.

Average Net Loan Growth in Most District States Outpaced the Nation